Gold to 1325

It’s time to admit summer is over no matter how much I want to stop the clock.  Bye-bye good summer. It’s time to go back to work and get ready for the next vacation season.

Alright, it’s time to do an update. Gold gave us good return. I called for a mid-term reversal back in early August. My gang and I exit equity around 1120 and long gold at around 1170. SPX did a huge swing 1130-1040-1150 since then. We didn’t have any fun here but our experience with gold is good enough. We are experiencing the historical high with our longs. My current target is 1325 and I am expecting it this week!  What I am really saying is I expect the last spike then mid-term consolidation. Why I say that? Gold is priced in currency. It is true Gold is keeping on making new high. BUT, the new high is only in USD, not any other currencies. It is safe to say it is the crash of USD, and because of the imbalance among major currencies I upgrade my target to 1325 from 1305.

Next, will USD keep on dropping? I don’t think so. JPY hits historical low at 83? Tell those Japanese about it. Apparently they don’t agree, and they start selling their own money. Same thing happened in Korea, in Switzerland for what we know.

Even EUR. Since 9/10, EUR booked a gain of 6.25%.

Below is a report from Brown Brothers.

"After rallying about 6.25% since September 10, the euro may enter a consolidative phase before advancing into the $1.38-$1.40 area in the first half of Q4. However, the euro may then surrender those gains in the second half of the quarter, as QEII is discounted (or not delivered at all), and the loss of economic momentum in Europe, ahead of a 2011 fiscal contraction, keeps debt restructuring fears elevated. The increased possibility that the EFSF has to be drawn upon may also spur speculation that the ECB may not be in a position to remove its emergency liquidity provisions; and indeed may have to actually embark on either more bond purchases or take some additional measures. All this may leave the euro trading around $1.30, if not lower, by year's end."

I don’t totally agree with their conclusion, but I also think the bounce of USD is coming even if the QE2 crap is exactly as the market priced in (needless to say if there is any discount). I utilized my economic model and I also calculate the fair value of EUR to be around 1.30+. My guestimation system sees a mid-term top of EUR at 1.368-1.374.